DRM-free music seen spurring iPod demand

The arrival of DRM-free music on Apple's iTunes Store will only serve to broaden the use of digital media players amongst consumers, likely boosting overall demand for the company's iPod line, one Wall Street analyst says.

Reacting to Apple's announcement Monday that it will soon begin selling music tracks from EMI without copy protection, PiperJaffray analyst Gene Munster advised investors to look out for an increase in iTunes music sales, explaining that the removal of DRM abolishes one more barrier to entry into the iTunes+iPod ecosystem.

"This effect could also result in more iPod sales as consumers have positive experiences with iTunes+iPod and the overall move to the digital music world gets easier," he wrote.

The analyst, who estimate that less than 5 percent of the music in the average iPod user's library includes music purchased from iTunes, said he believes the success of the iPod is dependent upon the total experience of the device and the music store, not the fact that iTunes music only plays on iPods.

"We believe DRM free music will have a positive impact on iPod demand given DRM free music should result in more usage of digital devices," he wrote. "The impact of increased iTunes downloads will outweigh the impact of some customers using non-iPod players with iTunes downloads."

Munster noted that there may be some short-term perception that the move could form a negative impact on iPod sales, as consumers will gain the ability play EMI's iTunes downloads on any digital music player. However, he said it's important to note that non-iPod MP3 players will not sync with iTunes the same way iPods do.

"Our belief is the success of the iPod is not because consumers are locked on the iTunes platform, but its success has been because of the total device and iTunes experience," he reiterated.

The PiperJaffray analyst maintains an Outperform rating and $124 price target on shares of Apple.

Non-iPod players may not have all the integrattion and features of the iPod, but they DO synch with iTunes. In fact, iTunes knows about other brand players' capabilities, and supports them intelligently when they are connected. (Since after all, iTunes was synching to other players before there ever was an iPod.)

1- DRM-free music and higher-quality downloads increase the popularity of online downloads. iTMS, as the dominant online music store, stands to benefit the most, and Apple gets more distribution marketshare/power/say over what goes on in the music industry.

2- Higher-quality tracks for sale at $1.29 increase iTMS revenues in tandem with the above, magnifying the iTMS' marketshare increase.

4- This move helps get European regulators off Apple's back and Apple out of court, since DRM free music plays on any device, and any device can use the non-DRM portion of the iTMS.

5- Offering the major labels a way to sell on iTMS at higher pricepoints (something the labels have been desperately wanting for a long time) improves Apple's relations with the major labels and undercuts efforts for the labels to find alternate online distribution, even though its clear that the way in which Apple is 'compromising' with the labels helps Apple most of all.

6- Given the lack of credible alternatives to the iPod/iTunes juggernaut, opening things up likely results in Apple INCREASING marketshare in both players and online downloads, not losing share. Expect to see SanDisk Sansas downloading tunes off of iTMS, while iTMS acts as an advertisement for how good things are on the Apple side of the fence.

It's just GENIUS all the way around. Hats off to Steve Jobs. I'd hate to have go up against him in business.

1- DRM-free music and higher-quality downloads increase the popularity of online downloads. iTMS, as the dominant online music store, stands to benefit the most, and Apple gets more distribution marketshare/power/say over what goes on in the music industry.

2- Higher-quality tracks for sale at $1.29 increase iTMS revenues in tandem with the above, magnifying the iTMS' marketshare increase.

4- This move helps get European regulators off Apple's back and Apple out of court, since DRM free music plays on any device, and any device can use the non-DRM portion of the iTMS.

5- Offering the major labels a way to sell on iTMS at higher pricepoints (something the labels have been desperately wanting for a long time) improves Apple's relations with the major labels and undercuts efforts for the labels to find alternate online distribution, even though its clear that the way in which Apple is 'compromising' with the labels helps Apple most of all.

6- Given the lack of credible alternatives to the iPod/iTunes juggernaut, opening things up likely results in Apple INCREASING marketshare in both players and online downloads, not losing share. Expect to see SanDisk Sansas downloading tunes off of iTMS, while iTMS acts as an advertisement for how good things are on the Apple side of the fence.

It's just GENIUS all the way around. Hats off to Steve Jobs. I'd hate to have go up against him in business.

I'm with you for the most part, but I don't see how offering non-DRM content will actually increase Apple's market share for either iTS or iPod. Apple's share of both markets is so high that it will be difficult to maintain even when things are going well.

I think what's getting lost in all of this "No FairPlay" hyper is that the only download format remains AAC!

AAC is not completely open however (it requires a patent license for codecs), and thus support is not universal.

Hence the analyst is stating that some persons might be more inclined to shop on iTMS and but iPods for the purchases, cos AAC support is spotty in most other MP3 players (and for the matter jukebox software/audio software).

For the record, I own a 1G shuffle and a 60GB iPod Photo. I've also bought a 1G shuffle for my bro's GF and a 1GB nano for my wife. However, aside from the 30 or so AAC tracks I've bought from iTMS over the last three years, all my music is AIFF or MP3. I'm not into lock-in; but I do like Apple's products.

Hence the analyst is stating that some persons might be more inclined to shop on iTMS and buy iPods for the purchases, cos AAC support is spotty in most other MP3 players (and for the matter jukebox software/audio software).

I would think this move would increase the likelihood that other music players would support AAC going forward. iTMS accessibility becomes a big selling point once most of iTMS is available as non-DRM tracks... for depth of catalog and ease of use, there really isn't anything that matches iTMS. Also, its by far the most used and well-known online music store.

You can picture the bullet-point talking points on the music player boxes already: "Supports iTunes Music Store!!!".

After all, with Microsoft having just stabbed the lot of them in the back with the Zune, why should the non-Apple portable player makers continue to carry Microsoft's "WMA yes, AAC no" water on this one?

I think the medium-term effect is iTunes' share of the d-load market going up, as non-iPod players increasingly use the iTMS, and the long-term effect may be one of the iPod's marketshare going up, as the iTMS offers a continual advertisement to non-iPod users as to how smooth and easy to use things are on the 'Apple user experience' side of the fence. Should be interesting.

I'm with you for the most part, but I don't see how offering non-DRM content will actually increase Apple's market share for either iTS or iPod. Apple's share of both markets is so high that it will be difficult to maintain even when things are going well.

Tell that to Microsoft. They've maintained their 90%+ marketshare for 15 years now without much trouble.

It's just GENIUS all the way around. Hats off to Steve Jobs. I'd hate to have go up against him in business.

This is why Jobs as head of Apple can outmaneuver anyone in that space. Given enough time, I have little doubt Steve could eventually displace Microsoft... it might take him the rest of his days to do it, but I think he could.

This is why Jobs as head of Apple can outmaneuver anyone in that space. Given enough time, I have little doubt Steve could eventually displace Microsoft... it might take him the rest of his days to do it, but I think he could.

Wishful thinking. It would take him 500 years to supplant Microsoft. Apple will always be a niche player going forward. Granted they may grow their niche a bit, but they won't supplant Windows in many situations and frankly I'm ok with that. Being niche means OSX ends up being better in most areas that matter to everyday users and can change faster with the market compared to monolithic MS.

I'm with you for the most part, but I don't see how offering non-DRM content will actually increase Apple's market share for either iTS or iPod. Apple's share of both markets is so high that it will be difficult to maintain even when things are going well.

I think you are half right and half wrong.

This will increase the iTS marketshare. But as a bonus, it will weaken the marketshare of the 3 big distributors: Walmart, Best Buy and Target. I foresee the iTS being the 3rd largest distributor by the WWDC 07 and the 2nd largest by MW 2008.

Many people are fine with 128kbps. P2P sites shows that 128kbps MP3 is by far the most common bitrate and the 2.5B songs also agrees with this. But was it a replacement for a CD? Of course not, bit they liked the ease of use and the ability to purchase individual songs was the big draw.

Now, the quality is comparable and if you are listening thorough your computer's speakers, HDTV's speakers or your iPod's speakers you certainly won't be able to tell the difference regardless of your aural senstivity. Of course there will be a small segment that will say 256kbps isn't good enough and maybe a few of them actually have the equipment and the hearing to tell the difference; but so what?

The announcement last week to purchase the whole album later with a credit to pre-purchased songs will also add to Apple's marketshare and the dwindling of the brick & mortar mega-centers.

And to top, it all off it will also be DRM free. Yet another reason that the iTS will draw even more customers while pulling customers from the sole sucking megacenters.

One more thing.... Now you'll have iTS customers buying audio for their non-iPod players, which may in fact hurt some iPod sales, but I'm guessing that the affect ill be negligible. Will there be some disgruntled iPod owners who now try a Sandisk, or dare I say, a Zune now. Sure, but we both know the chances of them sticking with it are probably pretty slim once they figure out that the iPod+iTunes integration is what really made the iPod so successful in the first place.

And as a bonus, Jobs announcement essentially killed the Zune Marketplace before it could ever take off.

Dick Applebaum on whether the iPad is a personal computer: "BTW, I am posting this from my iPad pc while sitting on the throne... personal enough for you?"

Wishful thinking. ... Apple will always be a niche player going forward. ...

A perfectly reasonable statement and perhaps even true. However, I work at a mid-sized company which develops corporate software, and Intel-based Macs are spreading like wildfire at my office. And, because it is Java-based, the software we develop is OS/X compatible, and even tested, though not supported, for customers. In fact, few people outside the company are even aware of this at this point.

I also know this is happening in many other Java and Open Source shops. Who do you think is buying all the Mac Pros and MacBook Pros?

One more thing: nobody is using Vista except for the testers, who have to. For everybody else it's a non-issue.

Thank the Intel move (this was impossible with PowerPC), and virtual machines. It's not visible yet, but I think there is a real sea-change brewing. Apple may not topple MS, but it is certainly busting out of the niche category.

Tell that to Microsoft. They've maintained their 90%+ marketshare for 15 years now without much trouble.

They are going to lose the top end of that 90% sooner than you think, because for the last five of those 15 years their execution has been quite poor. Apple will keep its high share so long as it makes good moves like this one and the best-designed players.

I own an iPod and have never bought (nor pirated) a song. I use it only to listen to podcasts and to listen to songs ripped from my CD collection, coincidentally to 256K AAC format.

I'm a sound fanatic and I don't like DRM. Only now has it actually become tempting for me to buy from iTMS.

That said, the move has no effect on my purchase of an iPod or something else. That's an industrial design issue and always has been for me.

I'd really like an iPod with recording capability, however. I can't understand why Apple does not offer this; it's forcing my wife, who is a journalist, to buy a regular MP3 player.

I'd really like an iPod with recording capability, however. I can't understand why Apple does not offer this; it's forcing my wife, who is a journalist, to buy a regular MP3 player.

The iPod has a great recording ability, it is just a matter of adding a tiny white add-on from Griffin. The recordings are immediately available iPod for play back or ripping to CD or whatever. Better an iPod with an add-on than some piece of junk with a mic built in.

From Apple ][ - to new Mac Pro I've owned them all.Long on AAPL so biased"Google doesn't sell you anything, Google just sells you!"

Norway helped change EMI's mind and we now know that Jobs agreed with eliminating DRM for years.

So both the DRM-hating doomsdayers can take a breath and the Euro-hating jingoists can take a reality check.

The market will continue to mature and striking the balance of free enterprise and intelligent regulations will make it all work.

Jobs had the business quote of the year, "Life is a balance between total freedom and simplicity. And we try to strike the local maximums, where we can give people what they tell us and what we think they want."

The same is for good governance.

The Mother of all flip-flops!!Support our troops by educating yourself and being a responsible voter. Democracy and Capitalism REQUIRE Intelligence and Wisdom if they are to be worth a damn beyond...

AAC is not completely open however (it requires a patent license for codecs), and thus support is not universal.

The only part different than MP3 is that support is not universal. As was noted, MP3 is patent encumbered too. The Debian Linux distribution was aware of this many years ago and avoided including encoders for that reason. Apple's encoder in iTunes is licensed from Fraunhofer. I think there is another company that claims rights to parts of MP3 as well, and is starting to make its rounds trying to sue businesses that use it.

Quote:

Originally Posted by digitalclips

The iPod has a great recording ability, it is just a matter of adding a tiny white add-on from Griffin. The recordings are immediately available iPod for play back or ripping to CD or whatever. Better an iPod with an add-on than some piece of junk with a mic built in.

I think those other units can record through the headphone jacks too.

Linux for iPod includes a recorder without any nasty & expensive external blocks, and removed the sampling & mono limitations of the older units to boot, just plug in a mic with the appropriate connector. The Griffin I had added too much noise so I just reboot it to Linux to do the recording.

Quote:

Originally Posted by nagromme

Non-iPod players may not have all the integrattion and features of the iPod, but they DO synch with iTunes. In fact, iTunes knows about other brand players' capabilities, and supports them intelligently when they are connected. (Since after all, iTunes was synching to other players before there ever was an iPod.)

Some say this move away from DRM could lower iPod sales. Well, who in their right mind would buy a player other than an iPod? The iPod is hands down the best player ever. Having said that, however, I wouldn't mind built in recording, and an FM, AM, and shortwave radio would be sweet too!

Could this move away from DRM, and Apple's lack of concern of losing iPod sales indicate Apple may license Mac OS X for generic PC hardware?

Could you clarify exactly how moving away from DRM is linked to running OS X on generic PC hardware. I've tried to make the connection, but my pea-brain just can't see how one is at all related to the other.

BTW, keep in mind that with Apple moving away from DRM, the other stores will too. This will lead to increased (and even) competition between all the on-line stores. So Apple can easily end up losing shares of their iTMS market.

So let me be clear ... you think Apple will allow OS X to run on generic PCs? I think I will stand by my Hell Freezing over date line on that one.

I don't know, digitalclips, if I buy that, though. You know how Apple likes to limit the number of new announcements at any one time to maximize media exposure. They've already got way too many product announcements scheduled for "hell freezing over" day (you really think they're going to release OS X for generic PCs the same day the Powerbook G5 comes out???) that they may have to move it to another time.

I don't know, digitalclips, if I buy that, though. You know how Apple likes to limit the number of new announcements at any one time to maximize media exposure. They've already got way too many product announcements scheduled for "hell freezing over" day (you really think they're going to release OS X for generic PCs the same day the Powerbook G5 comes out???) that they may have to move it to another time.

Maybe "flying pigs" day?

From Apple ][ - to new Mac Pro I've owned them all.Long on AAPL so biased"Google doesn't sell you anything, Google just sells you!"